Baring Vostok Raises $1B for Russia Fund

Firm: Baring Vostok Capital Partners

Fund: Baring Vostok Private Equity Fund IV

Amount Raised: $1 billion

Baring Vostok Capital Partners, a private equity firm focused on making investments in former Soviet countries, has raised $1 billion for its fourth fund—more than twice the size of its $413 million fund raised in 2005 and the largest pool ever assembled in Eastern Europe.

The Moscow-based firm invests across sectors and stages, backing tech startups such as search engine Yandex, light industrials such as bottled water company Borjomi, and heavy industrials such as Syktyvkar Forestry.

Baring Vostok typically looks to take controlling stakes through direct investments in companies. The firm refers to its portfolio companies as “projects,” emphasizing the growth-capital nature of many of its investments.

Previous investors in Baring Vostok funds include the European Bank for Reconstruction and Development, International Finance Corp., OPIC Investment Funds, and the Pennsylvania State Employees Retirement System, according to CapitalIQ.

Russia and the Commonwealth of Independent States “remain challenging markets in many respects,” said Co-Managing Partner Michael Calvey in a statement announcing the formation of the new fund. “But the returns on investment are very attractive and compare favorably with most other countries or regions.”

Baring Vostok has spread its portfolio across a range of sectors, with 28 percent of its capital since 1994 devoted to information services, 22 percent to mining, 11 percent to industrials and 9 percent to retail. Its notable acquisitions to date include CTC Media in 2001, which has returned 40x to Baring Vostok on its way to becoming one of the most popular TV stations in Russia. Another portfolio company is Volga Gas, 90 percent-controlled by Baring Vostok. By the end of April, the company is set to list 30 percent of its shares for an estimated take of $100 million on the regulation-light AIM market of the London Stock Exchange.

One of Baring Vostok’s most lucrative buyouts was of e-commerce site The firm bought a controlling stake in the company for $3 million in 2000. The firm recently sold roughly 20 percent of Ozon, often called the of Russia, for $18 million to Index Ventures, with participation by Cisco Systems and Holtzbrinck Ventures. Ozon posted revenue of $34 million last year, and the site is considered a pioneer in Russia’s e-commerce market.

Ozon has had to mold its technology and business model to accommodate the Russian market, whose characteristics are unfamiliar to most Westerners. For instance, the company has built a network of couriers to deliver online purchases, a necessity given the long delivery times of the Russian post office, said Index General Partner Giuseppe Zocco. Ozon has also had to overcome the fact that Russian consumers often don’t have credit cards. Most of the purchases made on the site now are cash-on-delivery. “You have to adapt the whole payment system and logistics to the local reality,” Zocco said.

Meanwhile, Cisco is evaluating funds with Eastern European expertise to potentially invest as a limited partner, with an ultimate aim of pouring $130 million into the region, says Hilton Romanski, Cisco’s corporate business development director who specializes in global ventures and acquisitions.—A.H. & J.H.